Serbian Revised Budget Raises 2013 Financing Needs by 14%

Serbia’s financing needs will rise 14 percent this year as the government seeks to cover the widening budget gap and service its debts.

Total financing needs rose to 630.9 billion dinars ($7.2 billion) from 554.4 billion dinars in the original 2013 budget. Serbia will add 65 billion dinars to local market borrowing, raising the full-year total to 330 billion dinars, it said in a revised 2013 budget draft posted on parliament’s website.

The 11-month old government of Prime Minister Ivica Dacic adopted revisions yesterday as the former Yugoslav republic seeks to strengthen the slipping economy and bring the widening budget deficit under control before it begins formal membership talks with the European Union.

“The current fiscal framework requires urgent additional measures of fiscal consolidation,” the Finance Ministry said in the draft budget. “In order to keep this year’s budget deficit sustainable, it is necessary to immediately implement additional fiscal adjustment on the spending side of at least 1 percent of” gross domestic product.

The government asked lawmakers to approve the bill that would contain the fiscal gap within 178.3 billion dinars, or 4.7 percent of GDP, from a previously planned 122 billion dinars, or 3.6 percent of GDP. The deficit reached 6 percent of GDP in the first quarter.

The fiscal gap may balloon to 8 percent of GDP this year if the government leaves policies unchanged, the International Monetary Fund said on May 22.

Loan Concerns

The Washington-based lender refrained from negotiating a new precautionary loan, which Serbia wants as proof to investors that the government’s policies are on track. Standard & Poor’s said in May the excessive fiscal deterioration could lead to a downgrade in Serbia’s BB- credit rating.

Serbia will expand Eurobond sales by 32.8 billion dinars to a full-year total of 221.2 billion dinars, or $2.5 billion, leaving it with an outstanding issue of $1 billion after selling $1.5 billion of seven-year bonds on Feb. 14.

Borrowing from foreign governments, banks and international financial institutions is cut by 23.7 billion dinars to 77.3 billion dinars.

The government also increased the issuance of sovereign guarantees for new borrowing by 26 million euros ($33.8 million) to 507.5 million euros.

The revised budget used the average exchange rate of 116 dinars to the euro rather than 120 dinars to the euro in the original 2013 budget, according to the government’s own calculations presented in the document.

Weakening Dinar

Investor concern over Serbia’s fiscal slippage has triggered a decline in the dinar, forcing the central bank to sell 275 million euros on the interbank market since May 30. The currency traded at 114.7450 to the euro at 12:41 p.m. in Belgrade, or 0.2 percent lower, according to data compiled by Bloomberg.

Prospects that the U.S. Federal Reserve will gradually end bond purchases by mid-2014 also reduced the relative attractiveness of developing-nation assets, triggering a sell-off in global markets.

The government sold only a fifth of the bonds offered to investors yesterday, while yields on Serbian 10-year Eurobond maturing in 2021 fell 23 basis points on the day to 7.19 percent at 12:45 p.m. in Belgrade.

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